Juridical and Financial Considerations on the Public Recapitalisation and Rescue of Financial Institutions During Periods of Financial Crises (Part I)
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As well as a consideration of why the lender of last resort facility should be used for
emergency situations and systemically relevant institutions in particular, an interesting point
which will be considered in this publication is the comparison between the European Central
Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation
Communication, specifically with its Annex, where the Commission explains how it
determines the price of equity or own funds (ordinary or common shares) - balancing the “real
value” with the “market value” within a crisis context. This publication will also consider how
to transform the Crisis into an opportunity in order to minimise tax burdens to taxpayers – as
well as making financial markets more efficient.
Furthermore, whether the Commission and Member States have applied the methodology (the
determination of the price of equity – as stated in the Annex to the Recapitalisation
Communication on Financial Institutions) in determining the price of equity with respect to
the capital of banks acquired by Member States, will be addressed. Such consideration could
provide a vital key to determining the real value of State Aid and the best possible price for
which capital could be sold.
Given the scale of government intervention and State rescues which occurred during the
recent crisis – as well as the prominence accorded to measures aimed at preventing and
limiting distortions of competition, calls have been made for competition authorities to take
on more formidable roles in designing and implementing exit strategies. In order to foster
competition as much as possible, it is proposed that ”governments should provide financial
institutions with incentives to prevent them from depending on government support once the
economy begins to recover.”
Keywords
HG Finance